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Finland delivers warning to Cyrpus

This includes a banking union regulated by the European Central Bank that will become active in 2014 and the euro-wide rescue fund known as the European Stability Mechanism.

Katainen highlighted falling interest rates of government debt for countries such as Ireland and Portugal as a sign that European confidence is returning. He added: "I am a former finance minister and I have learned not to say that we have seen the worst."

The Finnish Prime Minister, who in the past has been an outspoken supporter of austerity for countries that have spent recklessly, said European nations must restore competitiveness to their economies.

"In Spain the competitiveness has been improving a lot they have done labor market reforms, they have done similar things in Ireland but it always takes some time to function."